Some of the nation’s biggest for-profit colleges and vocational schools are boosting enrollment in tough times by making more loans directly to cash-strapped students, knowing full well many of them probably won’t be able to repay what they borrowed.
The schools still make money because the practice boosts their enrollment and brings in tuition dollars subsidized by the government. But some of these students could end up saddled with high interest rates and loan payments they can’t handle, a burden that could damage their credit for years to come.
Among the for-profit colleges that are booming are ITT, Corinthian Colleges and Career Education Corp. They and other such institutions have an estimated 1.2 million U.S. students pursuing degrees in such fields as nursing, computers and the culinary arts.
Many students at these schools get thousands of dollars in tuition grants under government programs and take out loans to cover the rest of their costs.
But because the economic meltdown has made it harder for students to get bank loans, several of these schools are stepping in, financing degrees in the same way a furniture store or used-car dealer might extend credit to customers.
These schools call the practice a lifeline for students who couldn’t otherwise afford an education. But some experts worry students will get pushed into loans they shouldn’t take.
Another concern: Some companies label such loans consumer financing rather than student loans, which carry particular disclosure requirements.
One such for-profit school, Colorado-based Westwood College, has been hit with a class-action lawsuit accusing it of fraud and arguing that its lending program violates state banking laws.
Westwood charges a relatively high 18 percent interest but doesn’t call its lending student loans.
Westwood calls the lawsuit unfounded.
